Plagued by problems, Shell pulls out of Arctic drilling – for now

Shell is dropping plans to drill in the Arctic waters off Alaska this year after a 2012 drilling season marred by equipment failures and ongoing investigations by the Coast Guard, Interior Department and the Department of Justice.

Shell Oil Co. President Marvin Odum said the company was suspending its plans to drill in the region this year but would be back “at a later stage.”

“Shell remains committed to building an Arctic exploration program that provides confidence to stakeholders and regulators, and meets the high standards the company applies to its operations around the world,” Odum said in a statement Wednesday. “We continue to believe that a measured and responsible pace, especially in the exploration phase, fits best in this remote area.”

Shell’s announcement came as the Justice Department investigates 16 safety and environmental violations the Coast Guard found in late November on the Noble Discoverer, one of the company’s two Arctic drilling rigs. The other rig, the Kulluk, is the subject of a Coast Guard investigation into the circumstances of its grounding Dec. 31 off Alaska’s Kodiak Island.

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The Interior Department has launched a broader review of Shell’s Arctic problems, which include the containment dome on its spill response barge being “crushed like a beer can” during a test off Washington state. The Environmental Protection Agency says both Shell drilling rigs violated air-quality standards. And the Noble Discoverer rig dragged anchor and almost grounded in Alaska’s Dutch Harbor.

Environmental groups on Wednesday hailed Shell’s announcement that it would suspend drilling. They also said President Barack Obama should withdraw his support.

“Secretary Salazar and President Obama gave drilling a chance; now the responsible decision is to make Arctic drilling off limits, forever,” Greenpeace USA Executive Director Phil Radford said in a statement, referring to outgoing Interior Secretary Ken Salazar.

The Alaska Wilderness League said the failures of a top company such as Shell proved that no oil company was ready to drill safely in the harsh and unpredictable region.

The top Democrat on the U.S. House of Representatives Natural Resources Committee said Shell had made the right decision in postponing its drilling plans.

“After bumbling through a year of mishaps, beachings and complete safety failures, it’s clear that Shell and the oil industry were not ready to drill in the Arctic,” said Massachusetts Rep. Edward Markey, a frequent critic of drilling off the Alaska coast.

Alaska Sen. Lisa Murkowski, the top Republican on the Senate Committee on Energy and Natural Resources, said she continued to support Shell’s Arctic efforts.

“I have always said that it must be done to the highest safety standards. Shell’s decision to postpone this summer’s exploratory drilling program shows that it shares that commitment to safety,” she said. “This pause, and it is only a pause in a multi-year drilling program that will ultimately provide great benefits both to the state of Alaska and the nation as a whole, is necessary for Shell to repair its ships and make the necessary updates to its exploration plans that will ensure a safe return to exploration soon.”

Both of Shell’s Arctic drilling rigs will be towed to Asia for repairs. It’s not clear whether they would have been ready for this summer’s Arctic drilling season.

Shell has spent more than $4.5 billion on leases, ships and special equipment to drill off Alaska’s Arctic coast. Last year it became the first company in two decades to drill the petroleum-rich but sensitive region.

Because of problems with its spill response equipment, the Interior Department wouldn’t let the company drill deep enough to hit oil. Both rigs were able to drill only a partial well apiece. The company had hoped for permission to drill deeper this year but its series of setbacks made that questionable.

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Shell said its 2012 drilling work was completed with no serious injuries or environmental impact. Shell President Odum said this year’s pause would give the company time to ensure that its equipment and people were ready for work in the Arctic waters off Alaska.

“We’ve made progress in Alaska, but this is a long-term program that we are pursuing in a safe and measured way,” Odum said.